-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OiG4Y9AMKNyRwaZiot3TzruEoDcJhdsOu1odkTDfRG8QG0Y2WgOUBjWVSlVTgnDz fcP+9puDogthpGscCeP2Dw== 0000950137-99-004161.txt : 19991117 0000950137-99-004161.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950137-99-004161 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRUSERV CORP CENTRAL INDEX KEY: 0000025095 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE [5072] IRS NUMBER: 362099896 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-18397 FILM NUMBER: 99754805 BUSINESS ADDRESS: STREET 1: 8600 WEST BRYN MAWR AVE CITY: CHICAGO STATE: IL ZIP: 60631 BUSINESS PHONE: 773-695-5000 MAIL ADDRESS: STREET 1: 8600 W. BRYN MAWR AVENUE CITY: CHICAGO STATE: IL ZIP: 60631-3505 FORMER COMPANY: FORMER CONFORMED NAME: COTTER & CO DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 2, 1999 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ---------- Commission file number 2-20910 ---------------------------------- TRUSERV CORPORATION --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-2099896 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8600 West Bryn Mawr Avenue Chicago, Illinois 60631-3505 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (773) 695-5000 ---------------------------------------------------- (Registrant's telephone number, including area code) Not applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of each of the issuer's classes of common stock, as of October 30, 1999. Class A Common Stock, $100 Par Value. 483,086 Shares. Class B Common Stock, $100 Par Value. 1,802,169 Shares. 2 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS TRUSERV CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (In thousands)
October 2, December 31, 1999 1998 ----------- ------------ (UNAUDITED) ASSETS - ------ Current assets: Cash and cash equivalents $ 7,482 $ 1,650 Accounts and notes receivable, net 545,094 537,811 Inventories 561,600 595,118 Other current assets 21,410 36,047 ---------- ---------- Total current assets 1,135,586 1,170,626 Properties less accumulated depreciation 249,671 255,405 Goodwill, net 115,420 117,468 Other assets 62,965 57,265 ---------- ---------- TOTAL ASSETS $1,563,642 $1,600,764 ========== ==========
See Notes to Condensed Consolidated Financial Statements. 2 3 TRUSERV CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except share data)
October 2, December 31, 1999 1998 ----------- ------------ (UNAUDITED) LIABILITIES AND CAPITALIZATION - ------------------------------ Current liabilities: Accounts payable $ 422,886 $ 492,729 Accrued expenses 85,228 73,092 Short-term borrowings 309,659 258,147 Current maturities of notes, long-term debt and capital lease obligations 92,999 90,618 Patronage dividends payable in cash -- 14,507 ----------- ----------- Total current liabilities 910,772 929,093 Long-term debt and obligations under capital leases 311,108 316,959 Capitalization: Promissory (subordinated) and installment notes 125,117 124,422 Class A common stock, net of subscriptions receivable; authorized 750,000 shares; issued and subscribed 528,300 and 557,700 shares (net of stock subscriptions receivable of $4,107,000 and $5,890,000) 48,723 49,880 Class B nonvoting common stock and paid-in capital; authorized 4,000,000 shares; issued and fully-paid, 1,820,118 and 1,748,326 shares; issuable as partial payment of patronage dividends 195,118 shares as of December 31, 1998 183,311 195,643 Deferred patronage (14,438) (14,438) Retained earnings 163 579 Accumulated other comprehensive income (1,114) (1,374) ----------- ----------- Total capitalization 341,762 354,712 ----------- ----------- TOTAL LIABILITIES AND CAPITALIZATION $ 1,563,642 $ 1,600,764 =========== ===========
See Notes to Condensed Consolidated Financial Statements. 3 4 TRUSERV CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands) (UNAUDITED)
FOR THE THIRTEEN FOR THE THIRTY-NINE WEEKS ENDED WEEKS ENDED ------------------------------ ----------------------------- October 2, October 3, October 2, October 3, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenues $1,117,496 $1,078,481 $3,452,496 $3,264,135 Cost and expenses: Cost of revenues 1,047,249 990,675 3,246,326 2,995,703 Warehouse, general and administrative 48,651 68,736 151,271 201,076 Interest paid to Members 3,779 3,766 10,532 11,422 Other interest expense 12,568 10,543 34,906 28,456 Gain on sale of properties (3,459) -- (9,307) -- Other expense (income), net 436 22 (55) (203) Income tax expense (1,381) 160 298 480 ----------- ----------- ----------- ----------- 1,107,843 1,073,902 3,433,971 3,236,934 ----------- ----------- ----------- ----------- Net margin before merger integration costs and cumulative effect of a change in accounting principle 9,653 4,579 18,525 27,201 Merger integration costs 3,874 4,300 12,457 8,342 ----------- ----------- ----------- ----------- Net margin before cumulative effect of a change in accounting principle 5,779 279 6,068 18,859 Cumulative effect on prior years of a change in accounting principle -- -- 6,484 -- ----------- ----------- ----------- ----------- Net margin (loss) $ 5,779 $ 279 $ (416) $ 18,859 =========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements. 4 5 TRUSERV CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (UNAUDITED)
FOR THE THIRTY-NINE WEEKS ENDED ------------------------------- October 2, October 3, 1999 1998 ----------- ------------ Operating activities: Net margin (loss) $ (416) $ 18,859 Adjustments to reconcile net margin (loss) to cash and cash equivalents used for operating activities: Statement of operations components not affecting cash and cash equivalents 31,092 25,368 Net change in working capital components (31,976) (236,953) --------- --------- Net cash and cash equivalents used for operating activities (1,300) (192,726) --------- --------- Investing activities: Additions to properties owned (39,754) (59,614) Proceeds from sale of properties owned 26,764 4,716 Changes in other assets (6,078) (9,614) --------- --------- Net cash and cash equivalents used for investing activities (19,068) (64,512) --------- --------- Financing activities: Proceeds from short-term borrowings 55,993 121,547 Proceeds from long-term borrowings 703 157,616 Payment of annual patronage dividend (14,507) (12,142) Purchase of common stock, net (2,959) (801) Payment of notes, long-term debt and lease obligations (13,030) (9,512) --------- --------- Net cash and cash equivalents provided by financing activities 26,200 256,708 --------- --------- Net increase (decrease) in cash and cash equivalents 5,832 (530) Cash and cash equivalents at beginning of period 1,650 2,224 --------- --------- Cash and cash equivalents at end of period $ 7,482 $ 1,694 ========= =========
See Notes to Condensed Consolidated Financial Statements. 5 6 TRUSERV CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BUSINESS COMBINATION On July 1, 1997, pursuant to an Agreement and Plan of Merger dated December 9, 1996 between Cotter & Company ("Cotter"), a Delaware corporation and Servistar Coast of Coast ("SCC"), SCC merged with and into Cotter, with Cotter being the surviving corporation (the "Merger"). Cotter was renamed TruServ Corporation ("TruServ" or the "Company"), effective with the Merger. Each outstanding share of SCC common stock and SCC Series A stock (excluding those shares canceled pursuant to Article III of the Merger Agreement) was converted into the right to receive one fully-paid and nonassessable share of TruServ Class A common stock, and each two outstanding shares of SCC preferred stock were converted into the right to receive one fully-paid and non-assessable share of TruServ Class B common stock. A total of 270,500 and 1,170,670 shares of TruServ Class A common stock and Class B common stock, respectively, were issued in connection with the Merger. Also 231,000 additional shares of TruServ Class A common stock were issued in exchange for Class B common stock to pre-Merger stockholders of Cotter to satisfy the Class A common stock ownership requirement of 60 shares per store (up to a maximum of 5 stores) applicable to such Members as a result of the Merger. To refinance the existing debt of SCC and pay related fees and expenses, the Company entered into a revolving loan agreement of up to $300,000,000 in short-term credit facilities with a group of banks and an additional $100,000,000 of long-term debt. The total purchase price of approximately $141,400,000 was allocated to assets and liabilities of the Company based on the estimated fair value as of the date of acquisition. The allocation was based on preliminary estimates which were revised in 1998. The excess of consideration paid over the estimated fair value of net assets acquired in the amount of $121,706,000 has been recorded as goodwill and is being amortized on a straight-line basis over forty years. In connection with the purchase business combination, an estimated liability of $38,200,000 was recognized for costs associated with the Merger plan. During 1998, an adjustment was recorded reducing this liability and goodwill by $2,500,000. The Merger plan specified that certain former SCC employment positions, approximately 1,500 in total, would be eliminated substantially within one year. As of October 2, 1999, approximately 93% of these employees have been terminated with the related cost of benefits of approximately $13,066,000 charged against the liability. The Merger plan specified the closure of four redundant former SCC distribution centers substantially within a one-year period. Distribution centers closing costs include net occupancy and costs after facilities are vacated. As of October 2, 1999, three distribution centers have been closed and $2,144,000 relating to distribution center closing costs has been charged against the liability. As of October 2, 1999, additional costs of $17,800,000 related to moving and relocation and the closure of the former SCC headquarters have been charged against the liability. The remaining liability balance at October 2, 1999 of $2,690,000 is for costs expected to be incurred by the fourth quarter of 1999 in connection with elimination of the remaining employment positions and closing the remaining distribution center. Merger integration costs of $12,457,000 and $8,342,000 for the periods ended October 2, 1999 and October 3, 1998, respectively, consist of expenses directly attributable to the Merger, including distribution center closings, severance pay, information service costs and general and administrative costs, that were not accrued as part of the Merger plan. NOTE 2 - GENERAL The condensed consolidated balance sheet, statement of operations and statement of cash flows at and for the period ended October 2, 1999 and the condensed consolidated statement of operations and statement of cash flows for the period ended October 3, 1998 are unaudited and, in the opinion of the management of the Company, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of financial position, 6 7 results of operations and cash flows for the respective interim periods. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. This financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 1998 included in the Company's 1998 Annual Report on Form 10-K. NOTE 3 - ESTIMATED PATRONAGE DIVIDENDS Patronage dividends are declared and paid by the Company after the close of each fiscal year. The 1998 annual patronage dividend was distributed through a payment of 30% of the total distribution in cash, with the balance being paid through the issuance of the Company's Class B nonvoting common stock. Such patronage dividends, consisting of substantially all of the Company's patronage source income, have been paid since 1949. There is no estimated patronage dividend for the period ended October 2, 1999 compared to an estimated patronage dividend of $18,613,000 for the corresponding period in 1998. NOTE 4 - INVENTORIES Inventories consisted of: October 2, December 31, 1999 1998 ----------- ------------ (UNAUDITED) (000 Omitted) Manufacturing inventories: Raw materials $ 3,574 $ 4,331 Work-in-process and finished goods 39,171 46,942 -------- -------- 42,745 51,273 Merchandise inventories 518,855 543,845 -------- -------- $561,600 $595,118 ======== ======== NOTE 5 - COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards (Statement) No. 130, Reporting Comprehensive Income. Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net margin or capitalization. Statement 130 requires unrealized gains or losses on the Company's foreign currency translation adjustments, which prior to adoption were reported separately in shareholder's equity to be included in other comprehensive income. The impact of the foreign currency translation adjustment had no material effect on the comprehensive income of the Company. NOTE 6 - SEGMENT INFORMATION The Company operates as a single reportable segment as the largest Member-owned wholesaler cooperative of hardware, lumber/building materials and related merchandise in the United States. Operations outside the United States were immaterial for the period ended October 2, 1999. The Company's sales to its Members are divided into three categories, as follows: (1) warehouse shipment sales (approximately 37% of total sales); (2) direct shipment sales (approximately 58% of total sales); and (3) relay sales (approximately 5% of total sales). Warehouse shipment sales are sales of products purchased, warehoused and resold by the Company upon orders from the Members. Direct shipment sales are sales of products purchased by the Company but delivered directly to Members from manufacturers. Relay sales are sales of products purchased by the Company in response to the requests of several Members for a product which is (i) included in future promotions, (ii) not normally held in inventory and (iii) not susceptible to direct shipment. Generally, the Company will give notice to all Members of its intention to purchase products for relay shipment and then purchase only so many of such products as the Members order. When the 7 8 product shipment arrives at the Company, it is not warehoused; rather, the Company breaks up the shipment and "relays" the appropriate quantities to the Members who placed orders. The Company's product offering, comprised of more than 72,000 stockkeeping units ("SKUs"), may be divided into seven classes of merchandise which are set forth, with their correspondent percentage of total revenue in the following table. For the Thirty-nine Weeks Ended October 2, 1999 October 3, 1998 Lumber and Buildings Materials 33.6% 30.8% Farm and Garden 16.9% 16.5% Hardware Goods 15.5% 16.4% Electrical and Plumbing 11.9% 13.1% Painting and Cleaning 10.0% 10.8% Appliance and Housewares 8.1% 8.1% Sporting Goods and Toys 4.0% 4.3% NOTE 7 - CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, Reporting the Costs of Start-Up Activities, which requires that costs related to start-up activities be expensed as incurred. Prior to 1999, the Company capitalized its costs incurred in connection with opening new distribution centers. The Company adopted the provisions of the SOP in its financial statements for the thirty-nine weeks ended October 2, 1999. The effect of adoption of SOP 98-5 was to record a charge for the cumulative effect of an accounting change of $6,484,000, to expense costs that had been previously capitalized prior to 1999. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRTY-NINE WEEKS ENDED OCTOBER 2, 1999 COMPARED TO THIRTY-NINE WEEKS ENDED OCTOBER 3, 1998 RESULTS OF OPERATIONS: Revenues for the thirty-nine weeks ended October 2, 1999 totaled $3,452,496,000. This represented an increase of $188,361,000 or 5.8% compared to the comparable period last year. The increase was due primarily to increases in direct shipment sales, which increased 13.3% and lumber/building materials sales which increased 17.6%. Gross margins decreased by $62,262,000 or 23.2%, and as a percentage of revenues, decreased to 6.0% from 8.2% for the comparable period last year. The decrease in gross margin percentage resulted from an increase in direct shipment and lumber sales, which have lower gross margin percentages. In addition to the shift in sales mix, the gross margin was negatively impacted by approximately $73,400,000 additional cost of sales expenses compared with the same period in 1998. The negative impact is primarily due to reclassifications of inventory-related warehouse, general and administrative expenses to cost of revenues based on actual inventory balances versus estimates. In 1998, the majority of this transfer was recorded in the fourth quarter. Warehouse, general and administrative expenses as a percentage of revenues decreased to 4.4% from 6.2% compared with the prior year. The improvement is due the reclassifications of inventory-related warehouse, general and administrative expenses described above. 8 9 Interest paid to Members decreased by $890,000 or 7.8% primarily due to a lower average interest rate and the lower principal balance. Other interest expense increased $6,450,000 due to higher borrowings compared to the same period last year and an increase in the Company's borrowing rate. The higher borrowings were required in part because of the increased cash requirement resulting from higher accounts receivable and inventory balances during the first thirty-nine weeks of 1999 compared with the same period in 1998. The increase in the 1999 balances was due to additional dating terms passed along to Members as well as the increase in direct ship sales. In the last thirteen weeks, both accounts receivable and inventory balances have declined compared with balances as of July 3, 1999. The gain on sale of properties totaled $9,307,000 as of October 2, 1999, and is attributable to the sale of redundant distribution centers and associated property. As the Company has deemed this gain to be Member income, income tax expense was adjusted during the thirteen weeks ended October 2, 1999, to reflect this allocation. The cumulative effect on prior years of a change in accounting principle of $6,484,000 reflects the start-up costs of converting the systems used by SCC distribution centers prior to the merger to those systems currently used by the Company. This reduction in net margins is in compliance with SOP 98-5, Reporting the Costs of Start-up Activities. Merger integration costs for the thirty-nine weeks ended October 2, 1999 were $12,457,000 compared to $8,342,000 for the comparable period last year. The combination of decreased gross margins, as well as increased borrowing costs and the cumulative effect of a change in accounting principle resulted in a net loss of $416,000 compared to a net margin of $18,859,000 for the same period last year. THIRTY-NINE WEEKS ENDED OCTOBER 2, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998 LIQUIDITY AND CAPITAL RESOURCES: As of the third quarter of 1999, inventories decreased by $33,518,000 in fulfillment of seasonal merchandise orders. Accounts and notes receivable increased by $7,283,000 due to the seasonal payment terms extended to the Company's Members and an increase in direct shipment sales. The accounts payable decrease of $69,843,000 was partially offset by the increase of $51,512,000 in short-term borrowings. Accrued expenses increased by $12,136,000, which resulted primarily from increased accruals due to the timing of payments in the third quarter of 1999. At October 2, 1999, net working capital decreased to $224,814,000 from $241,533,000 at December 31, 1998. The current ratio decreased to 1.25 at October 2, 1999 compared to 1.26 at December 31, 1998. At July 1, 1997, the Company had established a $300,000,000 five-year revolving credit facility with a group of banks. These agreements were amended during March 1999. In addition, on October 1, 1999 the Company established a $25,000,000 short-term credit facility. The borrowings under these agreements were $270,000,000 and $227,000,000 at October 2, 1999 and December 31, 1998, respectively. The Company's capital is primarily derived from Class A common stock and retained earnings, together with promissory (subordinated) notes and nonvoting Class B common stock issued in connection with the Company's annual patronage dividend. The Company believes the funds derived from these capital resources, as well as operations and the credit facilities noted above, will be sufficient to satisfy capital needs. Total capital expenditures, including those made under capital leases, were $39,754,000 for the thirty-nine weeks ended October 2, 1999 compared to $59,614,000 during the comparable period in 1998. These capital expenditures relate to additional equipment and technological improvements at the regional distribution centers and at the corporate headquarters. Additionally, the Company has sold four redundant distribution centers during the first thirty-nine weeks of fiscal 1999. THIRTEEN WEEKS ENDED OCTOBER 2, 1999 COMPARED TO THIRTEEN WEEKS ENDED OCTOBER 3, 1998 RESULTS OF OPERATIONS: 9 10 Revenues for the three months ended October 2, 1999 totaled $1,117,496,000. This represented an increase of $39,015,000 or 3.6% compared to the comparable period last year. The increase was due primarily to increases in direct shipment sales, which increased 9.7%. Lumber/building materials sales increased 21.4%. Gross margins decreased by $17,559,000 or 20.0%, and as a percentage of revenues, decreased to 6.3% from 8.1% for the comparable period last year. The decrease in gross margin percentage resulted from an increase in direct shipment and lumber sales, which have lower gross margin percentages. In addition to the shift in sales mix, the gross margin was negatively impacted by cost of sales expenses compared with the same period in 1998. The negative impact is primarily due to reclassifications of inventory-related warehouse, general and administrative expenses to cost of revenues based on actual inventory balances versus estimates. In 1998, the majority of this transfer was recorded in the fourth quarter. Warehouse, general and administrative expenses as a percentage of revenues decreased to 4.4% from 6.4% compared with the prior year. The improvement is primarily attributable to reclassifications of inventory-related warehouse, general and administrative expenses as described above. Interest paid to Members decreased by $13,000 or 0.3% primarily due to a lower average interest rate and the lower principal balance. Other interest expense increased $2,025,000 due an increase in the Company's borrowing rate. Merger integration costs for the thirteen weeks ended October 2, 1999 were $3,874,000 compared to $4,300,000 for the comparable period last year. The combination of increased revenues, as well as, decreased warehouse, general and administrative costs, along with a gain in the sale of properties resulted in a net margin of $5,779,000 for the thirteen week period ending October 2, 1999 compared to a net margin of $279,000 for the same period last year. Year 2000 General The Company started its Year 2000 Project in late 1996. Portions of the information systems are not yet "Year 2000 compliant", however, these are considered to be non-mission critical. The Company has established a corporate-wide program to address any problems arising from the transition to the Year 2000 in both information systems and other "embedded" systems in all facilities. State Of Readiness The Company has evaluated all mission-critical information systems. The repair and initial testing of these systems has been completed. Integrated end-to-end testing for mission critical processes has been completed. The Company's Desktop assessment and remediation is on schedule for most facilities. The Data Center capabilities have been assessed and remedied including voice and data communications. Testing of critical Data Center infrastructure is currently underway. The Company's real properties and physical plants are being evaluated for "embedded" systems concerns and potential problems are being addressed on a local level. Key electronic trading partners have been tested to ensure proper communications into the Year 2000. The Company is on schedule to complete its Year 2000 initiative during the fourth quarter of 1999. Costs The budget for the Year 2000 project is $16,900,000. Actual costs to date are $15,229,000. The approximate percentage of the Year 2000 costs to the total Information Services budget is 14%. Funding has been provided through normal operating and financing activities. The expense for the Year 2000 program is as follows: 10 11 1996 $ 1.0 million 1997 $ 3.2 million 1998 $ 7.9 million 1999 $ 4.6 million (projected) 2000 $ 0.2 million (projected) Total $16.9 million (projected)
Risks A worst case scenario for the Company would involve a breakdown in the distribution chain to Members. Such a scenario could be realized either through the inability of vendors to provide merchandise or the Company's inability to receive or properly process orders from Members. Contingency Plans The Company is establishing an alternate supplier plan in the event that vendors suffer from Year 2000 related problems. Contingency planning for information systems and possible "embedded" systems is also in progress. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's operations are subject to certain market risks, primarily interest rate risk and credit risk. Interest rate risk pertains to the Company's variable rate debt which totals approximately $270 million at October 2, 1999. A 50 basis point movement in the interest rates would result in an approximate $1.35 million annualized increase or decrease in interest expense and cash flows. Interest rate risk is managed through a combination of variable and fixed-rate debt instruments with varying maturities. Credit risk pertains mostly to the Company's trade receivables. The Company extends credit to its members as part of its day-to-day operations. The Company believes that as no specific receivable or group of receivables comprises a significant percentage of total trade accounts, its risk in respect to trade receivable is limited. Additionally, the Company believes that its allowance for doubtful accounts is adequate in respect to member credit risks. PART II - OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE Item 5. OTHER INFORMATION. NONE Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits NONE (b) Reports on Form 8-K NONE 11 12 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. TRUSERV CORPORATION Date: November 12, 1999 By /s/ DANIEL T. BURNS ----------------- ---------------------------------- Daniel T. Burns Executive Vice President, Administration (Mr. Burns is the principal administrative officer and has been duly authorized to sign on behalf of the Registrant.) 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 OCT-02-1999 7,482 0 545,094 0 561,600 1,135,586 502,043 252,372 1,563,642 910,772 311,108 0 0 232,034 109,728 1,563,642 3,452,496 3,452,496 3,246,326 3,246,326 154,366 0 45,438 6,366 298 6,068 0 0 (6,484) (416) 0 0
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